Tag: currencies

It’s advantage dollar, as currencies swing to the tune of central bank policies, BFSI News, ET BFSI

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Currency swings, notably in the second half of 2021, are being driven by various stances of global central banks. A soft August non-farm payroll report and a dovish speech from Fed Chair Jerome Powell at the Jackson Hole have taken some of the sting out of the dollar on the upside. Accordingly, the rupee outperformed most in Asian emerging market basket in August.

However, the Indian currency then started retreating amid the ongoing spillover volatility due to the uncertainty over monetary normalisation by RBI. The latest move by the Indian rate-setter to absorb liquidity through the VRRR auction worth Rs 50,000 crore hinted at the first stage of monetary tightening.

Meanwhile, the dollar got some modest support against the rupee in the wake of strong buying by importers. However, the dollar flow momentum is not yet over. The rupee still remains the favourite carry trade counter in the EM basket, despite any possible outflows that can arise due to the concerns over the Delta variant.

As far as monetary tightening is concerned, it will be done gradually by the central banks, avoiding any major volatility due to policy divergence among themselves.

On the technical side, the rupee has a strong ceiling against the dollar around 72.80 while the floor can be around 74.40 followed by 74.80 in the coming months. We will remain negative on the rupee in the medium term based on the stronger dollar trend, which is likely to stay for the rest of the year.

The EUR-USD as well as EUR-INR pairs have come under pressure after the ECB shifted to a symmetrical 2.0% inflation target in late July. While it was not quite as aggressive as the Fed’s average inflation targeting, ECB’s new policy has still managed to drive real EUR interest rates down to new low and hit the trade-weighted euro.

As for the rupee, an appreciation in the Indian currency since late April this year has kept the euro-rupee pair lower. This comes at a time when the US Fed is preparing to normalise policy. With US jobs numbers likely to improve into October, the dollar can stay stronger versus euro in the coming weeks. We think the EUR-USD pair can stay in the 1.16-1.20 range going into the yearend, but risks are clearly skewed lower. The UK pound continues to follow a narrow range of 1.37-1.39 vs dollar since the last two months.

The sterling remains choppy within a range despite better-than-expected Nationwide House Price Index and Manufacturing PMI for August. Surprisingly, the pound lost its strength after the UK PM announced a tax hike to fund the budget deficit, which weighed on the currency amid fears that a recovery in the British economy may take longer than expected.

Additionally, markets are starting to take into account Brexit-related political risks associated with the end of the grace period at month-end September for the Northern Ireland-UK trade check issue. Technically, both euro and pound should fall in the coming months, which can lift the dollar index to around 94.80 by year end.

(DK Aggarwal is the CMD of SMC Investment and Advisors)



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Pressure on risk currencies subside, US inflation in focus

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Risk currencies hovered above their recent lows against the dollar and the yen on Monday, as fears about slowdown in the global economic recovery appeared to have subsided for now.

The outlook for US inflation and the speed of the Federal Reserve‘s future policy tightening are back in focus ahead of Tuesday’s consumer price data and Fed Chair Jerome Powell’s testimony from Wednesday.

“If we see strong data, the Fed could bring forward their projection for their first rate hike further from their current forecast of 2023. That would also mean they have to finish tapering earlier,” said Shinichiro Kadota, senior FX strategist at Barclays.

The euro traded at $1.1873, edging back from its three-month low of $1.17815 set on Wednesday while against the yen the common currency stood at ¥130.87, off Thursday’s 2-1/2-month low of ¥129.63.

Sterling also ticked up to $1.3900, while the Australian dollar bounced back to $0.7487 from Friday’s seven-month low of $0.7410.

ALSO READ Rupee slides toward year’s low as India’s trade deficit widens

Risk currencies slipped earlier last week as investors curtailed their bets on them, in part as economic data from many countries fell short of the market’s expectations.

Concerns about the Delta variant of the novel coronavirus also added to the cautious mood although few investors thought the economic recovery would be derailed.

Chinese eonomy

Selling in risk currencies subsided by Friday, however, and sentiment was bolstered further after China cut banks’ reserve requirement ratio across the board, to underpin its economic recovery that is starting to lose momentum.

On Monday, the Chinese yuan was flat at 6.4785 per dollar, off Friday’s 2-1/2-month low of 6.5005.

A recovery in risk sentiment hampered the safe-haven yen on Monday. The Japanese currency stood at 110.17 yen per dollar, off Thursday’s one-month high of 109.535.

With the data calendar on Monday relatively bare, many investors are looking to Tuesday’s US consumer price data for June.

Economists polled by Reuters expect core CPI to have risen 0.4 per cent from May and 4 per cent from a year earlier after two straight months of sharp gains in prices.

Any signs that inflation could be more persistent than previously thought could fan expectations the Fed may exit from current stimulus earlier, supporting the dollar against other major currencies.

Conversely, more benign data could lead investors to think the US central bank can afford to maintain an easy policy framework for longer, encouraging more bets on risk assets,including risk-sensitive currencies.

Cryptocurrencies were little moved, with bitcoin at $34,267and ether at $2,137.

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Chinese banks promise to step up cryptocurrency ban, BFSI News, ET BFSI

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BEIJING: China‘s biggest banks promised Monday to refuse to help customers trade Bitcoin and other cryptocurrencies after the central bank said executives were told to step up enforcement of a government ban.

Regulators appear to worry that despite the 2013 ban on Chinese banks and other institutions handling cryptocurrencies, the state-run financial system might be indirectly exposed to risks. Beijing also worries users might evade efforts to monitor and control the financial system.

The four major state-owned commercial banks and payment service Alipay promised to step up monitoring of customers and block use of their accounts to buy or trade crypto-currencies.

“Customers are asked to be more aware of risks, safeguard bank accounts and not to use virtual currency-related transactions,” China Construction Bank Ltd. said on its website.

Similar promises were issued by Industrial and Commercial Bank of China Ltd., Bank of China Ltd., Agricultural Bank of China Ltd., Postal Savings Bank of China Ltd. and Alipay, operated by Ant Group.

Promoters of cryptocurrencies say they allow anonymity and flexibility, but Chinese regulators warn that might aid money-laundering or other crimes.

Bank executives were summoned to a meeting at which they were questioned about their activities and told to “maintain financial stability and security,” the central bank said in a statement.

It said cryptocurrency trading “disrupts normal economic and financial order” and can facilitate money laundering and other crime.

Regulators tightened prohibitions against handling cryptocurrencies in 2017 and publicly reminded banks about their potential risks in May, possibly reflecting concern cryptocurrency mining and trading was continuing.

Regulators in several Chinese regions have ordered cryptocurrency mining operations to shut down.

The Chinese central bank is developing an electronic version of the country’s yuan that could be tracked and controlled by Beijing.



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Now, you can send money in 100 currencies through Axis Bank Mobile App

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Private sector lender Axis Bank has launched a new feature to send money abroad on its mobile banking app in over 100 different currencies.

“With the addition of this feature on the Mobile App, Axis Bank brings a convenient and hassle-free service to its customers where one can now send money abroad through a simple two-step process,” it said in a statement on Monday.

Customers can send money abroad in over 100 different currencies, without any need to visit a branch. They can send up to $25,000 per transaction for various purposes such as education fee payment, family maintenance, health-related expenses.

“To make the proposition richer, Axis is also offering a preferential rate on digital channels,” it further said.

Satheesh Krishnamurthy, EVP and Head, Private Banking and Third Party Products, Axis Bank, noted that forex transactions are traditionally viewed as complex transactions involving lengthy documentation. “However contrary to this belief, in most cases, it’s as simple as a domestic transfer. Our Mobile App journey demonstrates this by offering a frictionless and simplified process,” he said.

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RBI has major concerns on cryptocurrencies, flagged it to govt: Das

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The Reserve Bank of India has “major concerns” on the cryptocurrencies traded in the market and has conveyed the same to the government, its governor Shaktikanta Das on Thursday said.

Underlining that both the government and the RBI are “committed to financial stability”, Das said there are no differences between the central bank and the Finance Ministry on the matter, and “we should now await the final decision on the matter” from the Centre.

Also read: Economic activity to continue unabated: RBI Governor

The comments come in light of what has been termed as confusing signals from the government on the cryptocurrencies. After announcing its intent to completely ban such currencies, which are very volatile in nature without any underlying principle guiding its values, the government had shown some openness to such currencies like Bitcoin.

“Central bank digital currency is one thing. The cryptocurrencies which are traded in the market are something else. Both RBI and government are committed to financial stability. We have flagged certain concerns around these cryptocurrencies which are being traded in the market. We have flagged certain major concerns to the government,” Das said.

He said the matter is still under the examination of the government, and a decision on this issue will be taken by it sooner than later.

It can be noted that the RBI had first banned such currencies through an order, which was struck down by the Supreme Court last year. The central bank’s concerns stem from the non-fiat nature of such currencies which are touted as the future in some quarters, and in the volatile price movements in them. In the past, the RBI had also come out with an appeal cautioning people not to trade in such currencies.

After the government proposed a complete ban on such currencies in a Bill presented in January, Finance Minister Nirmala Sitharaman had earlier this month said that she is all for encouraging experiments in the field, which was termed as a confusing signal in some quarters.

Das on Thursday said the RBI continues its work on a digital version of a fiat currency, and is currently “assessing the financial stability implications of introducing such a Central Bank Digital Currency (CBDC)”.

“As the underlying technology is still developing, we are exploring ways for a clear, safe and legally certain settlement finality, which is most crucial for a secure and efficient payment system,” he said.

Das added that there are not many “practical instances” of operationalisation of a CBDC globally, and this calls for “utmost precaution” before India goes ahead.

Meanwhile, Das said digital is the future across the banking landscape and “we will have a lot of shifts taking place on this front going ahead”.

From a regulatory perspective, fostering effective regulations will be a priority for the RBI, he said, adding it is an endeavour not to constrain innovations but to promote those without compromising on financial sector stability, cybersecurity and customer protection.

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